Stocks seen to remain weak

Stocks are expected to remain weak this week due to continuing concerns on oil prices, the selloff in US stocks and the lack of fresh leads to entice investors to enter the market.

“The direction of the local equities market will continue to depend on how the US markets will perform this week. Investors’ confidence has dramatically been eroded by the sustained selling on the local bourse,” said AB Capital Securities research head Jovis Vistan.

“There is a tremendous amount of uncertainty and it may take a while for confidence to return to the market. Once the US market stabilizes, we should see traders here also calming down,” Vistan said.

US stocks have been on a downtrend as investors remain worried that problems in subprime mortgages – those made to borrowers with poor credit histories – will force lenders to make credit less available. When people and companies can’t borrow money as easily, the economy tends to slow down.

Asset-backed securities have been losing their values over the past seven weeks amid concerns that defaults in securities backed by sub-prime mortgages may spread across the credit markets. Interest rates for these leveraged junk bonds to finance acquisitions have soared 120 basis points, and more than forty junk bond offerings were canceled or restructured worldwide in the past six weeks.

Vistan said local investors are also concerned over the government’s fiscal situation and the impact of the much-feared drought in the country. Last week, the PSEi closed at 3,352, a decline of 166.52 points or 4.7 percent week on week as investors were weighed down by a sell off in US stocks.

“Technically, the market looks like it has turned an important corner after it breached its medium term moving average line. Moreover, the PSEi closed below the lower band of its bollinger band by 1.3 percent. This combined with the steep downtrend suggests that the downward trend in prices has a good chance of continuing. However, a short-term pull-back inside the bollinger bands is likely,” Vistan said.

“Fundamentally, we believe that last week’s plunge is an opportunity to selectively buy for long term investors. The problems in the US mortgage market doesn’t mean that the Philippine economy and corporate earnings are going to falter. Once the emotions would die down, we should see the equity market to bounce back later this year. With interest rates remaining low, there really aren’t a lot of alternative places to park investors’ money,” Vista added.